Hancock Fabrics, Inc. (OTC symbol: HKFI) today announced
financial results for its third quarter ended October 26, 2013 and
first thirty-nine weeks of fiscal 2013.
Financial results for the third quarter include:
- Comparable store sales increased by
1.1% in the third quarter of 2013 following a 2.3% increase in the
third quarter of 2012. Net sales for the quarter were virtually
flat at $71.8 million compared to $71.9 million for the third
quarter of last year.
- Gross profit for the third quarter
improved by 240 basis points to 41.6% as compared to 39.2% for the
third quarter of the prior year. Excluding fluctuations in the
inventory valuation reserve from both years the gross profit
improved by 270 basis points.
- Selling, general and administrative
expenses for the quarter, including depreciation and amortization,
remained flat due to increases in advertising and insurance claims,
offset by reductions in professional fees and depreciation.
- Operating income for the quarter was
$0.8 million compared to a loss of $0.9 million in the third
quarter last year, representing a reversal of a loss and an
improvement of $1.7 million.
- EBITDA, a non-GAAP measure, which is
defined as earnings (loss) before interest, taxes, depreciation and
amortization increased to $2.0 million, a 369% improvement over the
same period of 2012.
- Net loss improved $1.6 million to $0.6
million, or $0.03 per basic share, in the third quarter of fiscal
2013 compared to a net loss of $2.2 million, or $0.11 per basic
share in the third quarter of fiscal 2012.
- At quarter end, the Company had
outstanding borrowings under its revolving line of credit of $60.0
million, a term loan balance of $15.0 million and outstanding
letters of credit of $6.8 million. Additional amounts available to
borrow under its revolving line of credit at the end of the quarter
were $24.1 million. The balance of the Company’s subordinated debt
was $8.2 million at quarter end.
First thirty-nine weeks financial results include:
- Net sales for the first thirty-nine
weeks of fiscal 2013 were $194.7 million compared to $196.3 million
last year and comparable store sales were virtually flat following
a 3.6% increase in the first thirty-nine weeks of the previous
year.
- Gross profit for the first thirty-nine
weeks of fiscal 2013 improved by 300 basis points to 43.9% as
compared to 40.9% for the prior year. Excluding the fluctuations in
the inventory valuation reserve from both years, the gross profit
improved 370 basis points.
- Selling, general and administrative
expenses for the first thirty-nine weeks of fiscal 2013, including
depreciation and amortization increased $248,000 but would have
come in lower if one-time items that reduced selling, general and
administrative expenses by $394,000 in the first thirty-nine weeks
of fiscal 2012 were excluded.
- Operating income improved by $4.9
million for the first thirty-nine weeks of fiscal 2013 to income of
$0.9 million from a loss of $4.1 million for the first thirty-nine
weeks of 2012.
- EBITDA increased $4.5 million to $4.4
million for the first thirty-nine weeks of fiscal 2013 compared to
a loss of $91,000 for the first thirty-nine weeks of last
year.
- Net loss improved $4.3 million to $3.7
million, or $0.18 per basic share, in the first thirty-nine weeks
of fiscal 2013, compared to a net loss of $8.0 million, or $0.40
per basic share in the first thirty-nine weeks of fiscal 2012.
Steve Morgan, President and Chief Executive Officer commented,
“We are pleased with the strong improvement in operating income for
the third quarter and fiscal year-to-date periods over last year.
Both periods in fiscal 2013 swung to positive operating income from
a loss last year, with improvements of $1.7 million and $4.9
million, respectively. This is being driven by the continued
improvements to gross margin and nearly flat SG&A expenses
coupled with a positive 1.1% sales comp in the third quarter. Our
focus on cash management remains a top priority and we have reduced
cash used in operations by $6.2 million in the first thirty-nine
weeks of fiscal 2013 compared to the same period last year. ”
Morgan continued, “As we move into the all-important fourth
quarter, we remain confident about the holiday season based on our
black Friday weekend performance with comp sales up 18.0% on top of
a 12.9% increase for the same period last year. We believe we are
well positioned with inventory in place to have a successful 4th
quarter and carry the momentum into fiscal 2014.”
Store Openings, Closings and
Remodels
During the third quarter of 2013, the Company opened one new
store, closed one store and relocated a store. For the first
thirty-nine weeks of fiscal 2013, two new stores opened, two closed
and four stores were relocated ending the quarter with 261
stores.
Hancock Fabrics, Inc. is committed to being the inspirational
authority in fabric and sewing, serving creative enthusiasts with a
complete selection of fashion and home decorating textiles, sewing
accessories, needlecraft supplies and sewing machines. The Company
currently operates 261 retail stores in 37 states and an Internet
store at www.hancockfabrics.com.
Forward-looking Statements
Statements in this news release that are not historical facts
are forward-looking statements that involve risks and uncertainties
which could cause actual results to differ materially from those
contained in the forward looking statements. These risks and
uncertainties include, but are not limited to the following: our
business and operating results may be adversely affected by the
general economic conditions and the slow economic recovery
following the ongoing financial crisis; intense competition and
adverse discounting actions taken by competitors, which could have
a material effect on our operations; our merchandising initiatives
and marketing emphasis may not provide expected results; changes in
customer demands and failure to manage inventory effectively could
adversely affect our operating results; our inability to
effectively implement our growth strategy and access funds for
future growth may have an adverse effect on sales growth; our
ability to attract and retain skilled people is important to our
success; we have significant indebtedness and interest rate
increases could negatively impact profitability; our business is
dependent on the ability to successfully access funds through
capital markets and financial institutions and any inability to
access funds may limit our ability to execute our business plan and
restrict operations we rely on for future growth; significant
changes in discount rates, actual investment return on pension
assets, changes in consumer demand or purchase patterns and other
factors could affect our earnings, equity, and pension
contributions in future periods; business matters encountered by
our suppliers may adversely impact our ability to meet our
customers’ needs; tightening of purchase terms by suppliers and
their factories may have a negative impact on our business; we are
vulnerable to risks associated with obtaining merchandise from
foreign suppliers; transportation industry challenges and rising
fuel costs may negatively impact our operating results; delays or
interruptions in the flow of merchandise between our suppliers
and/or our distribution center and our stores could adversely
impact our operating results; changes in the labor market and in
federal, state, or local regulations could have a negative impact
on our business; taxing authorities could disagree with our tax
treatment of certain deductions or transactions, resulting in
unexpected tax assessments; our current cash resources might not be
sufficient to meet our expected near-term cash needs; a disruption
in our data processing services would negatively impact our
business; a failure to adequately maintain the security of
confidential information could have an adverse effect on our
business; failure to comply with various laws and regulations as
well as litigation developments could adversely affect our business
operations and financial performance; we may not be able to
maintain or negotiate favorable lease terms for our retail stores;
changes in accounting principles may have a negative impact on our
reported results; our results may be adversely affected by serious
disruptions or catastrophic events, including geo-political events
and weather; changes in newspaper subscription rates may result in
reduced exposure to our circular advertisement; unexpected or
unfavorable consumer responses to our promotional or merchandising
programs could materially adversely affect our sales, results of
operations, cash flow and financial condition; new regulations
related to “conflict minerals” may force us to incur additional
expenses, may make our supply chain more complex and may result in
damage to our reputation with customers; there are risks associated
with our common stock trading on the OTC Markets, formerly known as
the “Pink Sheets”; our stock price has been volatile and could
decrease in value; future sales of our common stock could adversely
affect the market price and our future capital-raising activities
could involve the issuance of equity securities, which could result
in a decline in the trading price of shares of our common stock; we
do not expect to pay cash dividends on shares of our common stock
for the foreseeable future and other risks and uncertainties
discussed in the Company’s Securities and Exchange Commission
(“SEC”) filings, including the risk factors set forth in Item 1A of
the Company's Annual Report on Form 10-K for the year ended January
26, 2013 and the Company’s other reports with the SEC. The Company
undertakes no obligation to revise these forward-looking statements
to reflect events or circumstances after the date hereof or to
reflect the occurrence of unforeseen events.
HANCOCK FABRICS,
INC. CONSOLIDATED BALANCE SHEETS
(unaudited)
October 26, October 27, (in
thousands, except for share amounts)
2013
2012 Assets Current assets: Cash and
cash equivalents $ 2,697 $ 2,953 Receivables, less allowance for
doubtful accounts 5,109 4,486 Merchandise inventories, net 114,743
114,070 Prepaid expenses 2,774
2,968 Total current assets 125,323
124,477 Property and equipment, net 33,252 34,203 Goodwill
2,880 2,880 Other assets, net 2,113
1,450 Total assets
$ 163,568 $ 163,010
Liabilities and Shareholders' Equity (Deficit) Current
liabilities: Accounts payable $ 25,059 $ 26,302 Accrued
liabilities 13,933
15,299 Total current liabilities 38,992 41,601
Long-term debt obligations, net 83,189 71,124 Capital lease
obligations 2,652 2,837 Postretirement benefits other than pensions
2,378 2,407 Pension and SERP liabilities 31,268 32,160 Other
liabilities 5,380
5,987 Total liabilities 163,859
156,116 Commitments and
contingencies Shareholders' equity (deficit):
Common stock, $.01 par value; 80,000,000
shares authorized; 35,009,862 and 34,913,211 issued and 21,569,517
and 21,506,108 outstanding, respectively
350 349 Additional paid-in capital 91,227 90,696 Retained earnings
92,737 96,980
Treasury stock, at cost, 13,440,345 and
13,407,103 shares held, respectively
(153,758 ) (153,739 ) Accumulated other comprehensive loss
(30,847 ) (27,392 )
Total shareholders' equity (deficit)
(291 ) 6,894 Total liabilities
and shareholders' equity (deficit) $ 163,568
$ 163,010
HANCOCK FABRICS, INC. CONSOLIDATED STATEMENTS OF
OPERATIONS (in thousands,
except per share amounts) (unaudited)
Thirteen Weeks Ended
October 26,
% of
October 27,
% of
2013
net sales
2012
net sales
Net sales $ 71,810 100.0 % $ 71,866 100.0 % Cost of goods
sold 41,930 58.4 43,684
60.8 Gross profit 29,880 41.6 28,182
39.2 Selling, general and administrative expenses 28,126
39.2 28,103 39.1 Depreciation and amortization 906
1.2 933 1.3
Operating income (loss) 848 1.2 (854 ) (1.2 ) Interest
expense, net 1,444 2.0
1,385 1.9 Loss before income taxes (596
) (0.8 ) (2,239 ) (3.1 ) Income taxes - -
- - Net
loss $ (596 ) (0.8 )% $ (2,239 ) (3.1 )%
Basic and diluted loss per share:
Net loss $ (0.03 )
$ (0.11 ) Weighted average shares outstanding:
Basic and diluted 20,565
20,042
Thirty-nine
Weeks Ended October 26,
% of
October 27,
% of
2013
net sales
2012
net sales
Net sales $ 194,685 100.0 % $ 196,265 100.0 % Cost of goods
sold 109,287 56.1 116,057
59.1 Gross profit 85,398 43.9 80,208
40.9 Selling, general and administrative expenses 81,836
42.0 81,464 41.5 Depreciation and amortization 2,682
1.4 2,806 1.4
Operating income (loss) 880 0.5 (4,062 ) (2.0 )
Interest expense, net 4,569 2.4
3,894 2.0 Loss before income
taxes (3,689 ) (1.9 ) (7,956 ) (4.0 ) Income taxes -
- - -
Net loss $ (3,689 ) (1.9 )% $ (7,956 )
(4.0 )% Basic and diluted loss per share:
Net loss $ (0.18 )
$ (0.40 ) Weighted average shares
outstanding: Basic and diluted 20,490
19,960
Supplemental Disclosures Regarding
Non-GAAP Financial Information
The Company has presented Earnings (Loss) before Interest,
Taxes, Depreciation and Amortization (“EBITDA”) in this press
release to provide investors with additional information to
evaluate our operating performance and our ability to service our
debt. The Company defines EBITDA as earnings (loss) before
interest, income taxes, depreciation and amortization. The Company
uses EBITDA, among other things, to evaluate operating performance,
to plan and forecast future periods’ operating performance, and as
an incentive compensation target for certain management
personnel.
As EBITDA is not a measure of operating performance or liquidity
calculated in accordance with U.S. GAAP, this measure should not be
considered in isolation of, or as a substitute for, net income
(loss), as an indicator of operating performance, or net cash (used
in) provided by operating activities as an indicator of liquidity.
Our computation of EBITDA may differ from similarly titled measures
used by other companies. As EBITDA excludes certain financial
information compared with net income (loss) and net cash (used in)
provided by operating activities, the most directly comparable GAAP
financial measures, users of this financial information should
consider the types of events and transactions which are excluded.
The table below shows a reconciliation of EBITDA to net loss and
net cash used in operating activities.
Hancock Fabrics, Inc.
Reconciliation of EBITDA
(unaudited)
Thirteen Weeks Ended Thirty-nine Weeks
Ended October 26, October 27, October 26,
October 27, (in thousands)
2013 2012
2013 2012 Net cash
used in operating activities $ (6,218 ) $ (3,906 ) $ (11,526 ) $
(17,704 ) Depreciation and amortization, including cost of goods
sold (1,145 ) (1,279 ) (3,534 ) (3,971 ) Amortization of deferred
loan costs (173 ) (63 ) (534 ) (186 ) Amortization of bond discount
- (583 ) (379 ) (1,748 ) Stock-based compensation (213 ) (320 )
(489 ) (693 ) Inventory valuation reserve (321 ) (119 ) (897 ) 539
Other (134 ) (183 ) (248 ) (372 ) Changes in assets and liabilities
7,608 4,214 13,918
16,179 Net loss (596 ) (2,239 ) (3,689
) (7,956 ) Interest expense, net 1,444 1,385 4,569 3,894
Depreciation and amortization, including cost of goods sold
1,145 1,279 3,534
3,971 EBITDA $ 1,993 $ 425
$ 4,414 $ (91 )
Hancock Fabrics, Inc.James B. Brown, 662-365-6112Executive Vice
President and Chief Financial Officer